Forex margin trading: This means
opening an account
through a
forex broker, depositing funds (margin) as a guarantee, and operating at a
credit level set with the broker (normally at leverage levels of up to
500:1). Investors can freely buy or sell forex within the limits of their
quota, and profits or losses will be credited to or debited from their
investment account automatically. This allows retail investors to use
relatively small amounts of funds to obtain larger buying power and use
forex as a means of risk diversification and an opportunity to profit from
exchange-rate movements. Generally, forex margin trading sees investors
speculate on the movement of the underlying asset.
What is a contract for difference
(CFD)?
A CFD is a
derivative instrument that lets investors gain potential profits from
anticipating the price movements of financial products such as indices,
forex, and commodities. A CFD is a contract to pay or receive the difference
in price of an underlying asset between the open and close of the
transaction. Transacting in CFDs does not involve transfer or ownership of
the underlying asset, which enables greater flexibility including lower
fees, easy access to international markets, and the use of leverage.
Why does the forex market exist?
A foreign exchange
market is a place where buyers and sellers can exchange foreign currencies
with each other. The main reasons for their existence include currency
exchange demands from importing and exporting businesses, demand from
overseas investments, multinational corporations hedging against currency
risks, and the investment needs of institutions and individuals.
Main participants in the forex
market:
Investment banks,
commercial banks, central banks, mutual and hedge funds, large corporations,
institutional traders, and individuals.
Benefits of the forex market:
Highly transparent (largest
volume, difficult to manipulate), flexible trading hours (almost 24/5
operations, same-day settlement), and low entry barriers. With leverage,
transactions can be made with a minimum of a few hundred USD.
Forex trading hours: Forex is an
over-the-counter (OTC)
market. It has global characteristics, with markets around the world
connected by computer networks to form a continuous market that operates
nearly 24 hours a day, 5 days a week. (Some products will be suspended
briefly before the opening of the Asian market during the day.) Every week,
Wellington in New Zealand is the first market to open and trading ends for
the week following the close in Chicago. Since forex trading is conducted
through a global network, the exchange of currencies does not rely on a
particular forex trading venue. As long as any forex market is open, all
currencies can be traded.
Forex market trading scale:
According to data from the
Bank for International Settlements (BIS), daily average forex trading volume
exceeds USD 6 trillion worldwide, making it the biggest financial market in
the world. Its scale far exceeds the market for securities and bonds. This
makes the forex market extremely fair and transparent.
Forex trading hours selection:
Generally, local
currencies will be most actively traded during the hours in which their
local markets are open. For example, when the American forex market opens,
transactions in USD and CAD are generally quite active; when the European
forex market opens, EUR and GBP transactions will be more active, and when
the Asian forex market opens, AUD and JPY transactions will be more active.
Currency code: Foreign exchange
markets use the
international standard ISO-4217 codes to stand for currencies. All
currencies are represented by three capital letters, with the first two
letters generally representing the region or country while the third
represents the currency unit. For example, the code for US dollars is USD
and the code for Japanese yen is JPY.
Most liquid currencies:
According to 2016 data from the
BIS, the top seven currencies with the highest average daily trade volume
are USD, EUR, JPY, GBP, AUD, CAD, and CHF.
Essential traits of a successful
forex trader:
Skills in fundamental and technical analysis, sound risk management,
excellent trading
psychology, and gradually accumulated trading experience.
How to profit from CFD trades:
After analysing trends in
the price of the product, investors can choose to long or short the price.
If the investor is long and the price rises, or if they are short and the
price falls, they can close the transaction at a profit.